Researchers use computer analytics for new education funding model

Two Irish researchers have been using microsimulation techniques to evaluate the impact of alternative funding models for Ireland’s higher-education system.

Dr Darragh Flannery, an economic lecturer at University of Limerick’s Kemmy Business School, teamed up with Cathal O’Donoghue from Teagasc to work on the education study. The duo deployed microsimulation techniques to evaluate the impact an income contingent loan or a graduate tax system might have for Irish students.

Microsimulation itself is a category of computerised analytical tools that performs highly detailed analysis of activities.

Flannery and O’Donoghue’s paper, ‘The Lifecycle Impact of Alternative Higher Education Finance Systems in Ireland’, was recently published in The Economic and Social Review.

According to the duo, this is the first time such a study has looked the impact a new funding structure would have for Ireland’s third-level sector.

Flannery and O’Donoghue looked to Australian models for their research into alternative higher-education finance systems.

“Our research suggests that an income contingent loan system (ICL), similar to that in use in Australia, would be most equitable, while a graduate tax system whereby graduates are levied with extra PRSI or income-tax payments for the rest of their working lives could be a better alternative from a fiscal viewpoint. Both of these systems require no up-front costs, unlike our current registration fee system, which is set to increase to €3,000 by 2015,” said Flannery.

Under the ICL system, graduates would pay nothing on entering higher education but would have a student debt of €10,000 on graduation.

The researchers said that only those who work and earn above a certain limit in a given year contribute towards repaying the debt in that year. According to their analysis, an individual stops their repayments once their debt is cleared. Interestingly, graduates who do not have their debt repaid by the time they retire simply have the debt cancelled.

“The results of the research found that with an assumption of a 0pc real interest rate on student loans, 82pc of graduates would repay their debt in full over 15 years in the ICL system,” explained Flannery.

He said the graduate tax system scenario assumes that the student does not pay fees up front and leaves with no debt. However, people would pay a graduate tax of an extra 1pc PRSI-related charge for the rest of their working lives.

“Within Ireland, the vast majority of third-level funding is provided by the State. Given the current difficult fiscal situation in Ireland, alternative forms of higher education financing have been mooted. International evidence has shown that since the mid-1990s, there has been a general move by developed nations to shift the burden of higher education costs onto the student and away from the state,” said Flannery.